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Is Procurement Child’s Play?

Procurement is hardly child’s play, considering the numerous interconnected tasks required for efficient and effective execution.  Practitioners would enthusiastically argue that the procurement function has matured over the years – from scribbled orders on papyrus to a globally digital operation.  It has gradually morphed into a critical corporate function which profoundly impacts an enterprise’s bottom line.

The accompanying graphic, created by Bill Michels, CEO at Aripart Consulting, was presented during the Horizon 2014 Purchasing Conference. Michels, pointing out the changes over several decades said, “Over time, the procurement function has gone from being transaction-driven through a variety of stages until today, when the real focus of the department is around being driven by the business strategies of the organization.”

procurement evolution

Hardly child’s play.

Yet, wouldn’t it be interesting – and fun – to be able to explain procurement to a child, perhaps even using a universal business model with which they are likely to be familiar. For our purposes, we will parallel several current supply chain methodologies with the age-old street lemonade stand.

Procurement practices such as strategy development, inventory optimization, and demand forecasting are a few choice examples.

Strategy

Fairly simple to describe: a plan of action to achieve one’s goals. A business strategy might differ slightly.  Wikibooks would have you believe a business strategy to be, “formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives.” And profits.

Lemonade Stand Translation: Mom or Dad, please purchase the necessary quantities –at the right price –  of lemons, sugar and cups so that after I pay you back for your financial outlay of materials, I may keep what is left over (profits).

Inventory optimization

Too much inventory leads to lower profits, yet with insufficient inventory customer demands will fall short.  According to Wikipedia, “many organizations that utilized inventory optimization reduced inventory levels by up to 25 percent in one year and enjoyed a discounted cash flow above 50 percent in less than two years.”

Lemonade Stand Translation: Dixie cups (or a reliable –let’s not forget quality– competitor) are a must have to sell lemonade.  Help Mom or Dad understand that unit pricing might be best at buying 100 while understanding that damage may occur with storage.  Sourcing the cups from a discount supermarket rather than the local gourmet shop might enhance the bottom line. Purchasing a small amount of cups, initially, will lead to less waste.  But, good inventory management starts with good …

Demand Forecasting

The term demand forecasting is fairly self-explanatory; what do you predict the estimated sales will be for your product. Most companies use historical data as input for their determination.

Lemonade Stand Translation: What does the weather look like?  If this isn’t the first lemonade stand of our young proprietors they have probably learned that July is hotter than September; a great help in determining when and how many ingredients to purchase.  Of course, allowing sufficient purchasing lead time with mom or dad is necessary to meet the demand of customers.

What about the competition down the street?  Perhaps some benchmarking is on order.  Where did they ever get those cute cups?

The list is endless.

The message here isn’t that Procurement is easy.  It might be easy to explain, but its innate complexities render it an important function of the corporation. And if procurement isn’t your core competency, consider outsourcing it.

We are here to help.

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What a coup!

A procurement coup, that is. A coup, and not of the military sort, “is an instance of successfully achieving something difficult,” according to Oxford Dictionary. Or, according to Merriam-Webster, “a brilliant, sudden, and usually highly successful stroke or act.”

Historically, there are countless coups of note. And arguably, many of the most remarkably valuable of these may be referred to as procurement coups.

The Louisiana Purchase comes to mind.

In 1803, sitting United States president Thomas Jefferson acquired an enormous swath of land, over 800,000 square miles, from the French for a mere $11M dollars.  Initially, Jefferson was opposed to the idea of such an expansive acquisition fearing it was both an unconstitutional maneuver and a potentially unfair expansion of the federal government’s power. Ultimately, Jefferson came around and the resulting land purchase nearly doubled the size of the United States.

The French were not the only ones who sat at the negotiation table with the U.S. Over a half a century after the Louisiana Purchase, in 1867, U.S. Secretary of State William H. Seward signed an agreement with Czarist Russia after the U.S. Senate approved the treaty of purchase. Apparently, the Russians lacked sufficient financial resources to adequately maintain military and civilian presence in such a sprawling region.   Eventually dubbed Seward’s Folly due its cost and the abundance of frozen wilderness to be procured in the $7M deal, it expanded the land holdings by 586,412 square miles which is roughly twice the size of Texas. The eventual discovery of gold, oil and other natural resources provided abundant prosperity for many.

Brilliant procurement purchases are not strictly limited to large land acquisitions. The recent –and rather unexpected- $13 billion purchase of organic food provider, Whole Foods, by giant online retailer, Amazon, not only shocked the global investment community but will redefine the grocery shopping experience. As the New York Times succinctly noted, “this will instantly transform the company that pioneered online shopping into a merchant with physical outposts in hundreds of neighborhoods across the country.”

The above-mentioned procurement examples simply represent a handful of purchasing achievements. The procurement function can be remarkably transformative for any organization… or government. Admirable negotiation skills, strategic direction and sound execution underpin the procurement process.  It is not merely about achieving the lowest price. It includes developing stable partnerships with trusted suppliers, preparing for disruptions through risk mitigation and understanding customer requirements. The effective procurement function provides a gateway to profits.

At SDI, we recognize the value of identifying which business processes are candidates for outsourcing.  And with 25 years of experience delivering procurement solutions for global customers, we are ready to maximize your bottom line results.


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I See You

This phrase may sound dreadfully creepy, depending on the context in which it used. Imagine someone hovering over your shoulder as you diligently work or innocently play on your device of choice. As they linger nearby they are eagerly scribing notes on the content of your text messages, emails written, photos taken and websites visited. None of us would stand for it.

Yet, we do and we know we do. Digitally.

Unless you’re streaming live video of yourself through a webcam or smart video device your physical self remains unseen. Yet, the digital footprint left behind by simply hovering with a mouse or swiping through a touchscreen retains sufficient hidden data to paint a fairly accurate portrait of who you are and what you like.

The accompanying infographic  from the digital literacy library of La Salle Academy in Providence, RI visually illustrates various components that drive the digital footprint.

footprint

Feel like making that footprint accessible to hackers? By not updating security software, using weak passwords, and retaining inadequate privacy settings on websites and apps, users are left vulnerable to unwanted access.

It is no surprise that Facebook, Amazon and other sites mine this data to provide us “branded” individuals with customized marketing campaigns and content. But what about those who’d like to opt out?

Major technology players have taken action to reduce this privacy invasion. Google, who had habitually been scanning users’ emails in an effort to glean information allowing them to cleverly target ad content, has recently announced an end to that practice. However, according to Business Insider “Instead of scanning a user’s e-mail, the ads will now be targeted with other personal information Google already pulls from sources such as search and YouTube.”  Rest assured you will still be the recipient of customized, targeted content.

Firefox, the free and open-source browser developed the non-profit Mozilla Foundation, has a fairly new sibling in town… Firefox focus.  This browser not only blocks ads but also provides tracking protection for Apple and Android devices. Users must keep in mind that Focus is a minimalistic browser that offers limited configuration.  Additionally, it uses Yahoo as its default search engine which might prove unappealing for many users.

Facebook has data privacy issues as well but they have larger issues to contend with, such as fake news, hateful posts and terrorist propaganda. Several weeks ago Elliot Schrage, Vice President for Public Policy and Communications for Facebook posted a series of “hard questions” as a means of opening a dialog on controversial issues, including privacy. Users are welcome to pose additional questions to Facebook at hardquestions@fb.com.

In the meantime, if the technology giants are not meeting your digital privacy needs Stay Safe Online is an organization whose mission is to empower a safer digital world. They offer plenty of tips and resources on how to stay safe online and minimize data intrusions.


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Social Media or Bust

“How do I love thee? Let me count the ways…”  Those immortal words were penned by the renowned Victorian poet, Elizabeth Barrett Browning, in the mid-19th century. Rest assured, love poems will no doubt continue to thrive and be scribed by lovebirds, but perhaps a more telling question for the 21st century business enterprise might be:  On how many social media platforms shall I engage?  Let’s see if I can even count that high!

To be sure, engagement in social media is an undeniably essential 21st century tool to reach, influence and retain customers and business partners. Digital social media is a terrific marketing technique that is less costly than its paper-based analog partner and expands the visibility of the products and services of businesses. Not to mention being a terrific community builder.

Who was the trailblazer for this ubiquitous publicizing tool? It depends on to whom you pose the question. Some might argue it dates back to an early postal system, the advent of the telegraph or even the telephone and radio.  Each of these, according to Small Business Trends, would qualify since each method provides a means of quickly –well, relatively quickly when considering their respective eras- communicating news and information across long distances.

Alternatively, The History Cooperative begins its social networking saga in the 20th century declaring the website SixDegrees.com as the birth of social media.  Six Degrees, now defunct, enabled users to create profiles and friend others users.  Sound familiar?

For the more digitally curious that would like to know who created what when, the accompanying infographic, by Fandom Marketing,  succinctly portrays the major players and the years in which they gained prominence.

rise of social media

But enough history, how about the present?

While I’ve outlined the benefits of developing an appropriate social presence, not maintaining sufficient presence surely smacks of technological illiteracy.  Creating multiple accounts that gather dust due to inactivity sends a message: you are either no longer in business or you haven’t grasped the importance of creating good content regularly.

Judiciously choosing the right platform is where the magic begins. Rather than creating accounts on numerous platforms, choose the 2 or 3 that make sense for your business. For example, the local plumber might choose Facebook as his / her preferred platform.  It is community oriented and networks locally. Conversely, a seller of enterprise software to the Fortune 500 might opt for LinkedIn over Instagram.

If you are looking for further guidance on the platform that best suits your needs, Forbes recently wrote a piece Which Social Media Platforms Are Right For Your Business while Huffington Post offers their own opinion on digital networking here.

If you’re looking for SDI, you can learn more about us on Twitter, LinkedIn and, of course, our blog.


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Data Fixation

What do baseball, Wall Street and supply chains have in common? A fixation with data analysis, to start.

Once upon a time there used to be data… now it’s all about Big Data. Data collection and its high-tech partner, data analytics, is, according to Wikipedia a “process of inspecting, cleansing, transforming, and modeling data with the goal of discovering useful information, suggesting conclusions, and supporting decision-making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains.” At the end of the day it is the quality of the data that reigns supremely.

Evidently, data analytics is embraced by an incalculable array of practitioners. But let’s get back to baseball first.

Michael Lewis’s 2003 business best seller, Moneyball: The Art of Winning an Unfair Game, persuasively explains how Oakland Athletics General Manager Billy Beane, using judiciously selected and interpreted statistical data, was able to assemble a very formidable baseball team on a budget far less than most other Major League Baseball teams. In the 2011 film version of the book, Moneyball, starring Brad Pitt as the data hero, (spoiler alert) the A’s don’t win the World Series. However the Boston Red Sox triumph a scant 2 seasons later by implementing the same statistical model established by the Athletics.

Additional variations of moneyball are played on Wall Street. Hungry to identify the trending prices of stocks and commodities, companies leverage the attendance at large business conferences and deploy data hunters to search for contacts that may have data valuable for forecasting the stock prices of other companies.

Hedge funds have gotten into the act, too.  According to the Wall Street Journal article, Wall Street’s insatiable lust: Data, data, data, “WorldQuant, a quantitative hedge fund based in Connecticut, has a team that reviews hundreds of data sets a year and works to bring online as many as possible that provide some value. Its staff of scientists and mathematicians then go to work on the data to see if it helps predict revenues at companies or other market phenomena.”

Comparable to the interpreted statistical data used in the baseball scenario, Wall Street relies on correctly interpreted data (quality data) to make decisions on investments and risk management. Incorrect or missing data arose as a key contributor to the mortgage crisis in 2008.

Who is else is using data analytics?  Although, a better question might be, “who isn’t?” The accompanying graphic, from McKinsey Consulting, paints a picture of which industries are engaged and the benefits they reap from using analytics associated with Big Data.

                      sdi big data

Not an industry itself, supply chain management is a key corporate service integral to a diverse range of industries. Not surprisingly SCM relies heavily on data analytics to optimize their supply chain, mitigate risk and perform demand/ supply forecasting.

In our procurement organization, with high volume transactions, we use analytics to consolidate and cleanse our volumes of data.  Company spend and supplier data are linked to allow greater insight into rising / falling commodity prices and sourcing options.  This heightened visibility allows us to reduce costs, mitigate risks, and tap into new suppliers – for ourselves and our clients.

More information on how we can help can be found here.


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How is your AI IQ?

Artificial Intelligence (AI) has been justifiably reaping its share of headline space lately – but it’s scarcely a new concept. In theory it appears analogous to 21st century science fiction, but its roots actually date back to the second century AD.

In ~ 150 AD, Heron – the celebrated Greek mathematician and engineer – designed and constructed mechanically / pneumatically operated men and self-operating machines known as automatons.  Similar to robots, they were designed to follow a predetermined set of instructions, yet acted as if they had a mind of their own. A subset of these devices were said to have been installed in temples to perform a range of tasks from the humble pouring of wine to rather disingenuously performing “magical acts of the gods” to win over skeptics within the congregation.

But we digress… automata was a very 2nd century innovation. And it has moved ahead significantly, since.

The concept of AI became prevalent enough and so closely linked to the potential of the 21st century that the eponymously titled film, directed by Steven Spielberg in 2001, was overwhelmingly embraced at movie houses around the world.  The concept was simple, especially in human terms. A technologically advanced -robotic boy yearns to earn the love of his human mother by becoming “real.”

Fast forward to the present. Countless businesses have ripped a page from Heron’s techno playbook by adapting his design as a powerful social interface on the Internet of Things. Late last year I penned a piece regarding the rampant use of “chatting” as a highly effective and functional way for business communication. Furthering this conversational concept, chatbots (chat robots) have not only become the popular kids in town but are saving businesses millions of dollars.  These chatbots, which simulate human conversation by leveraging A.I. technology, perform a multitude of human customer service tasks.

Businesses have gotten the message that this is an important and innovative tool not to be disregarded.

According to Business Insider (BI), “Foreseeing immense potential, businesses are starting to invest heavily in the burgeoning bot economy. A number of brands and publishers have already deployed bots on messaging and collaboration channels, including HP, 1-800-Flowers, and CNN.”  Their graph, below, illustrates the powerful financial impact of chatbot use across various services offerings.

chatbots

For those of us in Supply Chain Management, A.I. delivers more than chatbots.  A recent article from Supply Chain World outlined the impact A.I. will have on future supply chains. They cite a paper, written by Dr. Hokey Min from the College of Business at Bowling Green State University, who adroitly predicted the applicability of A.I. to several aspects of SC Management. Among these applications that have come to fruition are setting inventory safety levels, demand planning and transportation network design.

How about beyond the supply chain?

The Wall Street Journal published a comprehensive piece on how artificial Intelligence is transforming the workplace in general.  Details on the impact this technology will have on management and employees can be found here.


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Call It What You Will

Small, indirect, tail-end, small supplier, non-strategic, non-core, tactical, etc.  The list doesn’t go on much longer, but the spend unquestionably does. From our procurement perspective at SDI, indirect spend refers to the sourcing and purchase of goods and services that are not directly incorporated into a manufactured product.

For example, consider the components typically used to construct most computers. Processors, motherboard connector cables, random access memory (RAM) modules and precious metals used for wiring are among the many components used in the direct production and manufacture of laptops. These direct components are considered strategic purchases and are judiciously sourced and purchased by the procurement unit within the company.

Now consider the support or peripheral products and services that are necessary to market and sell the product – in this example, the laptop. Not quite as strategic and not used directly in the production of the laptop, indirect spend such as office furniture and supplies, maintenance  services, travel, and contingent labor enable the manufacture and sale of the product but are certainly not components.  Since these products and services are indirectly used to facilitate laptop sales, they are referred to as indirect spend.

Often, indirect spend categories are not as judiciously sourced purchased as their direct counterparts.

Why the difference matters

Implementing the trusty 80/20 rule, tail end spend is characteristically referred to as the final 20% of company spend.  The graphic below, courtesy of Capgemini Consulting, crisply depicts the segmentation of the smaller supplier, tail-end base.

supplier_tail

Since this indirect spend is considered non-critical, less strategic and frequently paid to smaller suppliers procurement organizations often employ fewer resources on the cost management of these indirect categories.  Worse, these fragmented costs and spot purchases are not even managed by procurement, but within individual business units that may be unfamiliar with effective procurement methodologies.

Yet, both types of spend are critical to the bottom line of the business.  Efficient cost management of the tail drives increased savings for the enterprise.  Reaping significant savings can be achieved by applying in-house procurement best practices to all cost categories. Or, relying on a third party with the right expertise.

Not surprisingly, organizations have made small supplier spend a priority in recent years.   Last year, the Hackett Group, recognizing that many procurement organizations, “may be leaving money on the table and deploying their resources inefficiently is in the low-value purchasing generally known as tail spend, “conducted a webinar to share their insights on small supplier best practices.

But not all companies are equipped to manage the complexities of smaller spend in-house. They rely on third party service providers such as SDI, whose primary focus is supply chain optimization. At SDI, we are a full lifecycle Business Process Outsourcing and Managed Services provider with extensive proficiency in small supplier, non-critical, tail-end spend.

You can learn more here on how we can deliver immediate and long-term benefits for you, as we have for many of our Fortune 500 customers.